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Investment in Associate

In: Business and Management

Submitted By bluemaja
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INVESTMENT IN ASSOCIATE
Intercorporate share investment * the purchase of the equity securities of one entity by another entity * case of one entity investing in another entity through the acquisition of share capital
Significant influence * power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies
Control
* power to govern the financial and operating policies of an entity so as to obtain benefits from its activities
Associate
* an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture
Subsidiary
* an entity including an unincorporated entity such as a partnership that is controlled by another entity known as the parent

SIGNIFICANT INFLUENCE
If the investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee – presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.

If less than 20% - does not have SI

Substantial or majority ownership by another investor * does not necessarily preclude an investor from having SI
Manifestations of SI a. Representation in the BOD b. Participation in policy making process c. Material transactions between the investor and investee d. Interchange of managerial personnel e. Provision of essential technical information

Potential voting rights * Considered in assessing whether an entity has SI * BUT the investor’s share in the P/L of the investee and of changes in investee’s equity is determined on the basis of “present ownership interest” and does not reflect the possible exercise or conversion of potential voting rights

Loss of SI * When an…...

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